SBIR/STTR Program Alignment to Critical and Emerging Technology Priorities

This brief article is part of our series on Government Programs Funding Critical Emerging Technologies. The analysis is ongoing and will continue to be updated. This article is focused on the SBIR/STTR program. Please see Blog 1 in the series: Critical Technologies Market Ecosystem where we define Critical Technologies. (Next week – Funding flows and transition rates for Microelectronics).

Deeper analysis of issues such as the transition from Phase I to Phase II to III and barriers towards commercialization will be provided in subsequent articles including from our ongoing study on barriers to entry.

Aligning Government Investments with U.S. Policy Objectives

As emerging technologies attract more and more U.S. government investment (e.g. CHIPS Act, Inflation Reduction Act, Defence critical tech priorities) to enable economic, social, and national security objectives, funding instruments such as SBIR/STTR, federal grants, Other Transaction Authorities (OTAs) are playing a growing role. These instruments have been designed with the express intent to make it easier for government to accelerate the adoption of emerging commercial solutions within the government and the economy more broadly.

To support policymakers and stakeholders in aligning investments with policy objectives, Public Spend Forum is undertaking a series of analyses, starting with the SBIR/STTR program, measuring overall trends and progress across various funding instruments. We are also making actionable data available to policymakers, ecosystem facilitators, and companies so they can deploy it in support of various programs.

SBIR/STTR Program Analysis

Given the magnitude and importance of the SBIR/STTR program, through which over $17 Billion in awards were made over the past five years, we decided to start our investment analysis there. The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) program, as it is formally known, supports scientific excellence and technological innovation through the investment of Federal research funds in critical American priorities. The difference in SBIR and STTR programs can be found here.

Objectives of our analysis include:

• Understand key trends in SBIR/STTR spending across various emerging tech categories deemed as critical per U.S. policy objectives (hereon called “critical technologies”)
• Identify potential discrepancies between policy objectives and investments
• Enable increased collaboration and efficiencies among various agencies/consortia/entities focused on the same critical tech categories through the SBIR/STTR and similar programs
• Ultimately, drive continuous improvement and alignment, by highlighting opportunities and driving actionable improvements

Methodology

This analysis is based on PSF compiled datasets and PSF’s AI-MI^TM (AI for Market Intelligence) platform. Below is a brief description of the methodology:

• Defined categories of critical tech utilizing PSF’s taxonomical data and algorithms, which provide a flexible approach to customizing market taxonomies
• Categorized all SBIR transactions into categories of spending with the goal of gaining directionally correct insights, through R&DMatch^TM; some transactions were matched to more than one category (e.g. AI application in space use cases)
• Combined deep supplier data through PSF’s SupplierMatch^TM datasets
• Corroborated/triangulated data against other sources
• Analyzed data for patterns and key insights

Defining Critical Emerging Technologies – The need for a consistent definition

In the first article in the Critical and Emerging Technologies (CET) series, we highlighted the need for a consistent definition of critical and emerging technologies. To that end, we applaud the efforts of the White House in convening a standards initiative, per the memo released on May 4, 2023.

To give those efforts a running start, we utilized PSF’s proprietary AI-enabled taxonomy mapping algorithms (OntologyMatch^TM) to develop an initial set of definitions. Version 1.0 of our approach resulted in 13 categories as highlighted in Figure below.

Findings Based on Analysis of SBIR/STTR Investments

To start, we wanted to get a sense of the total amount invested over the past five years (2018-2022), which amounted to $17B. Across the previous five-year period analyzed, we were able to categorize 98% of the spending against the 13 categories, with only $392M falling into other potential categories.

SBIR/STTR funding is primarily focused on the 13 tech areas defined, although the amount of investment varies significantly across categories:

• Biotech and medical technology-related awards accounted for approximately 38% of the awards
• The next five categories range from $2.1B to $1.7B
• Clean Energy and Microelectronics, two major priority areas, account for approximately $1.3B and $1.1B in awards

Finding: The distribution of spending is changing with more investments in several categories aligned with U.S. priorities

In analyzing overall award trends among categories, a few key insights emerge. Keep in mind that overall SBIR awards grew approximately 32% from 2018 to 2022 as you review the growth of each category. So hypothetically, each category should at least grow 32% if spread evenly:

• Three CET categories that have seen an explosion in SBIR/STTR spending are Robotics & Autonomy, Space Technology, and Trusted AI & Autonomy. SBIR/STTR investments in Space technologies and related solutions, for example, increased almost 100%, not a surprise. Robotics & Automation solution investments increased 85%, while Trusted AI & Autonomy, increased an eye-popping 248%
• Clean Energy awards grew by about 50% while Microelectronics saw a jump of almost 40%. We would expect these categories to potentially have a larger increase in the coming year
• Financial Technologies gained 75%, however, the dollars invested for Financial Technologies remain the lowest of the CETs at $28M in FY2022
• Over the five-year period, only one CET Category trended downward in, which was Biotechnology. While Biotech fell 6% in total awards across the five years, it remains the single largest category at approximately $6.5B or 38% of all spending

Finding: HHS and the US Air Force award by far the highest amounts of SBIR/STTRs, followed by the Army and the Department of Energy

The Department of Defense, as a whole, awards nearly half the total dollars. However, when DoD is broken out separately, five participating Agencies (DOD, HHS, DOE, NASA, and NSF) account for 77% of total SBIR/STTR spend. More interesting are the results by category (next finding).

Finding: Defense Department’s SBIR/STTR awards are concentrated in a few key categories while civilian agency awards are more focused

How awards are aligned by agency is a critical question, both to drive collaboration among agencies investing in similar areas, as well as for R&D initiatives, startups and emerging companies targeting agencies to receive awards.

Some observations:

• Defense Department awards are primarily concentrated across six categories, making up 70% of awards
• Meanwhile, HHS accounts for the predominant amount of awards for biotech
• Electronic warfare, as expected, is primarily a Defense Department category and is the largest category of awards
• Civilian portion of Clean Energy is highly concentrated within the Department of Energy
• Advanced materials/manufacturing is split across Defense and Civilian while Advanced Communication and Advanced Computing lean significantly towards Defense
• Trusted AI/Autonomy also leans strongly towards Defense
• Space Technology also leans Defense while the Civilian portion is concentrated within NASA

Finding: More than 40% of the 10,000+ companies have both Phase I and Phase II

A critical question that requires deeper analysis is the success rate of the companies, moving from Phase I to Phase II to Phase III or other government contracts. While we look at this more deeply within our full report, here’s a sneak peek of what we found:

• Approximately 10k+ unique companies were awarded SBIRs/STTRs
• Of these, 40% have both Phase I and Phase II. This percentage is actually higher if you remove Phase I awards for new companies coming into the program during 2022. The question we look at more deeply in our report – how many companies successfully transition from Phase II into programs of record or other government contracts

Finding: Defense Department’s SBIR/STTR awards are concentrated in a few key categories while civilian agency awards are more focused

The SBIR/STTR program is a vital instrument to “seed” and commercialize the technology in support of U.S. policy objectives. Understanding patterns of spending, especially by critical categories is critically important (no pun intended).

Our analysis to date shows how awards are concentrated within different categories. This can help both government and facilitators in driving collaboration as well as companies in targeting government investments.

The question still remains, however, for policymakers:

• How much of the SBIR/STTR program should be going towards which categories? We suggest that targets be set by category
• Is the program achieving its objectives in ultimately driving innovation and commercialization of critical tech across government and the broader economy?